The Nifty is likely to consolidate around 11,400 this week, says Amit Gupta of ICICIdirect
The Nifty is likely to consolidate around 11,400 this week. The highest put base has remained at 11,400 strike for a major part of the September series.
The index is expected to remain around these levels for some more time. We see it trading in the 11,350-11,550 range this week.
Volatility is still hovering near its key resistance level of 14 percent. The moment it starts moving lower, it would be positive for the market.
Open interest (OI) in Nifty futures has fallen to 28 million shares from 30 million shares since the last series on account of closure of long positions.
In addition, certain outperforming segments in the market like FMCG have also seen long liquidation. If the Nifty starts forming a base above 11,000, then the money will start flowing into such spaces.
The pharmaceutical space, which was a late mover, can still participate in the upmove. Some stocks are exhibiting a great short covering patterns.
In addition, the market is expected to become more stock-specific. Certain stocks that were under-performing so far can start witnessing a pullback.Bank Nifty likely to consolidate with a positive bias
Volatility in the currency market remained extremely high throughout last week. As the rupee appreciated to around Rs 73 per dollar, a reversal was also seen in the Bank Nifty from 26,700 levels.
The index rallied nearly 500 points from the lows with stocks like Kotak Mahindra Bank, HDFC Bank and Axis Bank providing a cushion. Participation was also seen in midcap stocks like IndusInd Bank.
Despite the index falling nearly 1,000 points from the highs, no major addition was seen in open interest. As the index reversed from 26,600, a marginal addition was seen in OI with a rise in price indicating buying interest coming in at lower levels.
The current leg of covering can be on the back of fresh long additions. As the index moved above 27,000, call blocks were seen in 27,200, followed by 27,500 strikes.
The index has been consolidating near 27,200 levels. We feel a close above these levels is likely to take the index towards its sizeable call base of 27,500. In the case of a correction, put writers of 26,900 are likely to provide a cushion.
The current price ratio of Bank Nifty/Nifty remained near 2.37 levels. Multiple support was seen near 2.36 levels. Hence, we feel a reversal can be seen in select banking stocks, which are likely to provide the required push to the index in coming days.Softer dollar lays foundation for marginal EM FX, equity recoveryGlobally, risk sentiments continue to remain in a risk-off mode. However, there was some recovery towards the end of the week as the Dollar Index moved to its lowest level since the first week of July around 94 levels. The escalating trade war remained a key variable.
There was no news on this count. Strong wage growth data from the US and a surge in crude prices kept emerging markets under pressure in the first half.
However, this changed in the last two sessions of the week as: (a) US CPI inflation came in lower than expectations; (b) Hawkish assessment of inflation by ECB; and (c) Sharp hike in rates by Turkish central bank helped to weaken the dollar and shore up sentiment in the currency.
This helped the MSCI EM equity and FX indices to recover by 2 percent each from its 2018 lows. As a result of risk-off sentiment, FIIs again sold in the EM equity segment. Outflows were seen from key EMs of South Korea ($398 million) and Thailand ($98 million). Malaysia and Indonesia also saw outflows of over $50 million.
As the rupee tanked sharply, FIIs sold equities worth over $430 million in the cash segment. In the index future segment, especially in the banking index, there was an addition in shorts as yields rose sharply (total index future addition was over $400 million).
The unusually large buying of index options took the tally for the month to over $2.3 billion. This suggests caution from FIIs on Indian equities as well
Going ahead, the Sino-US trade war, EM contagion risks and US rate divergence theme will continue to remain in the spotlight. Ahead of US FOMC meeting on September 26, the EM asset class will remain cautious. A dovish verdict could rekindle the EM recovery theme.Disclaimer: The author is Head of Derivative from ICICIdirect. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.